Speaking in very rough numbers, the cortex A8 has about 4 times the number of transistors as ARM11. However, when cortex A8 is manufactured on a 65nm process, the actual size of the chip is roughly twice the size of the ARM11 core when the ARM11 is manufactured on a 90nm process and thus twice as expensive as that ARM11. If they were both manufactured on a 65nm process to maintain an apples-to-apples comparison...the Cortex A8 would be about 4 times as large, and thus about 4 times as expensive to make as that hypothetical 65nm ARM11.

Without going into *too* much detail... large volume IC manufacturing costs are very strongly linearly related to the size of the chips (within the same technology "generation/family" eg SOI, strained silicon, copper interconnects, etc) due to the built-in costs of the wafers they are made from as well as the staggering up-front capital costs for the equipment.

Hope that clears it up a bit.